Why KenolKobil boss David Ohana is not excited about Kenya's oil plan

 

 

KenolKobil Managing Director David Ohana addresses media last week in Nairobi. (Photo: David Njaaga/Standard)

He would love to get his oil from Kenya someday, but KenolKobil Managing Director David Ohana, an Israeli citizen and former army man, sees no business case for country’s much-publicised oil.

Mr Ohana has been in the country for the last 16 years and is currently at the helm of one of the country’s largest downstream, upstream and lubricant oil company which runs subsidiaries in East and Central Africa. He thinks Kenya cannot make it in the oil business with the current infrastructure.

“I don’t think very soon we are going to see anything coming out of Turkana. The oil is waxy crude and you need to heat it and it will cost you more money,” he says.

“When you go to the international market such as Arab gulf, you can get any amount of oil you want very easily and cheaply,” adds Ohana.

Speaking in Nairobi during the third annual East Africa Investor Conference by Renaissance Capital where keen investors interact with business leaders in the region, prominent policymakers and opinion formers, Ohana says the country will have to up its infrastructure if it were to reap anything from oil.

He says it will be hard for Kenya to compete since with the current infrastructure, it means that if one goes to the international markets such as Arab Gulf, they will get better offers.

Such regions are already miles ahead, with oil being produced using cheap methods due to advanced technology. Kenya, is planning to do trials to transport oil by road and with no functional refinery in East Africa, this makes it hard to compete.

“I don’t see where Kenya is going to get the billions of dollars to do 1,000 kilometres or more of pipeline given the current state of the economy. And there is still a lot of infrastructure needed,” he said.

For the more than 16 years he has been around, four of those as the Managing Director at KenoKobil, Ohana is of the view that he has never seen a bad economic situation as it is currently. With credit risk in the market rising to 9.91 per cent and banks slowing their loan books, getting such substantial amount of money from the local market, he thinks, may not be possible.

Kenya has an option to turn to external funders to develop the infrastructure for oil but Ohana thinks that the country may struggle to convince potential investors that the venture is a viable business case.

“Such large project could require commissioning of a crude line. I don’t see this happening in the next five to 10 years but maybe I’m wrong. Kenya is moving faster but I don’t think the existing infrastructure and status of economy is ready for such,” he said.

In March, three firms- Prime Fuels Kenya, Multiple Hauliers and Oilfield Movers had been awarded a three-year contract with a combined value of Sh1.5 billion to transport crude oil from Turkana to Mombasa for the early oil pilot scheme. Prime Fuels was to supply specialised tanktainers to hold the oil while Multiple Hauliers and Oilfield Movers were to supply trucks to deliver the oil to the Kenya Petroleum Refineries Ltd (KPLR) for storage.

But with prices averaging $50 (about Sh5,000) per barrel compared to $110 (Sh11,000) per barrel when the country started thinking about the possibility of exporting oil, Ohana reckons any inefficiency makes the project a mirage.“Any price above $75 (Sh7,500) per barrel is super attractive for any country. If you cannot get your efficiencies at that level, you can’t play in that league and you better leave the business to the big boys,” said Ohana.

Explaining his perspective about the crude oil to Renaissance Capital global Chief Economist Charles Robertson, Ohana said that there is still a lot for government to do to attract the big boys to invest in Kenya at the expense of other places where infrastructure is superb and the crude is cheaper.

Competitive price

Mr Ohana who has been in the oil sector for more than 20 years says production of crude is almost unlimited since it is available from different parts of the world and thus its price is competitive.

“I see a story of putting a refinery closer to one of the wells and supply to East and Central Africa. This is the economics I understand. But to export crude at this stage, I don’t see it happening,” he said during a panel discussion. Uganda has been planning to set up a refinery but the idea has remained in the pipeline for over five years now. Kenya may have to team up with the giant firms which have the expertise. Mr Ohana whose firm suffered losses from the inefficient KPLR, says that it may not be possible for Kenya to do it alone.

“It is one thing to discover oil but it is a long way to know how to exploit it,” he cautions. The Government had set June 30 as the date for the first batch of the 40,000 barrels of crude oil produced by Tullow Oil Company in Turkana to be ferried from the site to the coastal city.

This was however put off with Energy Cabinet Secretary Charles Keter announcing that this was to wait until the Petroleum Exploration and Production Bill is approved by the Senate. The Bill stalled in the Senate after President Uhuru Kenyatta sought to reduce the revenue share for the local community from 10 to five per cent sparking uproar from the local community.